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Thursday, March 02, 2006

Dead meat in cold storage

Most people worry about bird flu because they don't want to get sick from it. But poultry farmers are worried about it because it could wipe them out. There's no bird flu yet in the US, but already it's hurting them. An excellent story in The Chicago Tribune gives some details:

"For a company like us that grows birds on the open range, it keeps me up at night," said [Illinois farmer Tom] Klopfenstein, general manager of Kauffman Ho-Ka Turkey Farms in Waterman, Ill., 65 miles west of Chicago. "It's scary."

Avian influenza is putting a fright into consumers around the globe, with consequences now being felt in the vast U.S. poultry industry. Prices are under pressure, particularly for leg quarters and other dark-meat chicken cuts, as demand begins to flag overseas.

[snip]

For export nations such as the United States, which typically ships about 14 percent of its poultry to overseas buyers, the latest scare comes at an inopportune time, coinciding with a period of increased production. While the white meat-dominated domestic market has held its own, dark cuts have started piling up.

"There's just a lot of poultry out there," explained Roose, who said the amount of chicken in cold storage has soared almost one-third from a year ago. (Greg Burns by-line, Chicago Tribune)

The commodity markets has been watching nervously for months, always alert to events that might affect future prices. Wholesale prices of leg quarters and thighs have dropped 53% from October to last week, while the popular skinless, boneless breasts dropped 25%. Grain markets, the feed producers, are also worried. Poultry farming is becoming unprofitable, which not only hurts the big guys like Tyson and Pilgrim's Pride, but the many growers deeply in debt to them for their sheds, chicks, feed and medicines.

In the current reporting period, almost nothing is going right, prompting Tyson Chief Executive John Tyson to declare last week that this quarter in the meat industry is "the toughest one I've seen."

Just last summer, the outlook appeared considerably brighter. Poultry production was surging, and broiler exports to Asia, in particular, appeared to be on the rise as mad cow concerns cut into shipments of beef.

These days, the same poultry producers that aggressively ramped up are now scaling back, reducing the number of egg sets that determine how many birds will be raised to maturity in coming months.

If avian flu strikes the United States, most likely transmitted by migratory birds winging their way northward, an immediate export ban would probably go into effect until the outbreak could be isolated to a region or area, said Jim Robb, director of the Livestock Marketing Information Center. "That takes time," said Robb. "There are economic consequences."

But the U.S. might be better able to cope than nearly any other market, he added. "We're well aware of the situation, and it would be constrained."

The U.S. poultry industry is primarily run by big commercial producers with the know-how and resources to take appropriate measures for containing an outbreak. That contrasts sharply with the small, homegrown flocks in Asia that have proven vulnerable to repeated infections.

"If we do our job, we can really minimize the risk," said Ed Garrett, chief executive of West Liberty Foods, an Iowa turkey processor. "There are ways to really slow it down or control it."

Well, maybe. But the big producers also put the burden of complying with new requirements on the growers, many of whom are hard pressed already. Tyson and their ilk supply the growers but control them only to the extent they can cut off their supplies (and call in their debt) if they don't do what they want. In the setting of an export ban, drastically decreased demand and plummeting prices, growers might not be able to comply or only appear to comply, cutting corners all the while. Many of them have huge sheds with tens of thousands of animals but slim margins that allow little leeway. By all accounts, sanitary conditions in most poultry operations are deplorable, even of the "big brands."

If HPAI H5N1 comes to US commercial flocks it could devastate the industry. Claiming (and worse, thinking) we are in better shape than Asia or Europe is just PR spin. Unfortunately, neither the virus nor the consumer will pay much attention.